U.S. Economy Suffers Asian Sniffles
Asia’s currency devaluations are hurting sales of American factory and farm products, the Federal Reserve said Wednesday in a survey showing the first economic fallout in the United States from problems overseas.
“Asian financial turmoil and currency weakness have adversely affected demand for manufactured and agricultural exports,” the Fed said in its “beige book,” a survey of economic conditions by its 12 district banks.
“Some districts report increased competition from imports,” it said.
Economists had been predicting for weeks that the sharp devaluation of Asian currencies from the Thai baht to the South Korean won would slow the U.S. economy by reducing demand for American products abroad and by slashing the price of Asian goods in the United States.
Wednesday’s report, based on information collected before Nov. 24, is the first clear evidence that is happening. Wall Street showed little reaction. The Dow Jones industrial average rose 13 points to close at 8,032.
The report was issued as the International Monetary Fund approved a record $55 billion bailout of the foundering South Korean economy, the world’s 11th largest.
Treasury Secretary Robert Rubin said Americans had “a vital national economic and security interest in helping Korea” and pledged up to $5 billion.
“American stability and prosperity is closely linked with the stability of the international financial system and the strength of our trading partners,” he said.
Indeed, five of the Fed’s district banks - Boston, Philadelphia, Cleveland, Dallas and San Francisco - already have detected the impact on manufacturers of weaker demand from Asia. A sixth, Atlanta, said factories are scaling back production in anticipation of weaker demand.
Two district banks - San Francisco and St. Louis - said Asia’s turmoil has hurt demand for agricultural exports.
Speaking in Las Vegas, Robert Parry, president of the Federal Reserve Bank of San Francisco, said the Asian financial problem will help slow U.S. economic growth from about 3.6 percent this year to the 2 percent range next year.
“I think we will slow down,” he said. “I don’t expect a repeat of the strong growth of ‘97.”
For now, though, the Fed’s beige book said “virtually all regions are experiencing tight labor markets, with some reporting increased wage pressures in specific industries and occupations with labor shortages.”
Just a month before Christmas, “retailers are generally optimistic about the sales outlook,” but they “are having a particularly difficult time in hiring and retaining seasonal workers,” it said.
Despite rising wages, “price pressures remain neutral on balance” in part because “increasing overseas competition appears to be offsetting any effects of wage gains,” it said.